Sanctions Ordered for Failure to Adequately “Preserve, Search for, and Collect Potentially Relevant Information”

Naaco Materials Handling Group, Inc. v. Lilly Co., 278 F.R.D. 395 (W.D. Tenn. 2011)

In this case, the court found that defendant “failed to take reasonable steps to preserve, search for, and collect potentially relevant information . . . after its duty to preserve evidence was triggered by being served with the complaint” which may have resulted in the destruction of relevant evidence.  Further, defendant failed to present an adequately prepared and knowledgeable 30(b)(6) deponent.  Accordingly, sanctions were imposed, including, among other things, additional discovery, additional forensic imaging at defendant’s expense, and monetary sanctions.

Plaintiff accused defendant of illegally accessing its proprietary website on over 40,000 occasions.  Early in the litigation process, the court granted plaintiff’s motion for expedited discovery which  resulted in an order allowing plaintiff’s expert to conduct a forensic examination of defendant’s computers to determine which, if any, were used to access plaintiff’s proprietary information and to make a copy of any hard drive on which such access was detected.  Evidence of access was found on 17 of the 35 computers subject to examination.  As litigation progressed, and in particular following the deposition of defendant’s 30(b)(6) deponent, plaintiff became concerned that relevant information had been lost and moved to prevent further spoliation and for defendant to bear many discovery-related costs.

The court’s opinion identified several discovery violations, including defendant’s failure to adequately and timely disseminate a legal hold notice; defendant’s failure to “to prevent emails from being deleted, to prevent data from being overwritten, or to identify and preserve backup tapes which might contain the only electronic evidence of access to [plaintiff’s] secure dealer website;” and defendant’s failure to “collect evidence from the key players or to search key players’ computers to see if ESI existed or had been deleted.”  Further, defendant “left collection efforts to its employees to search their own computers without supervision or oversight from management” and took no effort to follow up with its employees or to document any of its search and collection efforts.  Defendant also failed to provide an adequately prepared 30(b)(6) deponent.  Accordingly, the court determined that defendant was “at a minimum, negligent in discharging its discovery obligations.”  The court noted, however, that plaintiff did not produce proof that relevant evidence was in fact destroyed and that the extent of prejudice was therefore in question; more substantial sanctions were therefore not warranted.  Nonetheless, the court found that lesser sanctions were appropriate.

Noting that the sanctions ordered were necessitated by defendant’s preservation and collection failures, the court ordered that defendant bear the cost of a second 30(b)(6) deposition; that defendant bear the cost of the forensic examinations and imaging already undertaken; that defendant bear the costs of additional analysis of nine of defendant’s employees’ computers which were used to access plaintiff’s website; that defendant bear the costs of imaging of all computers in defendant’s service department (where plaintiff provided proof that certain software “which would only be needed by the service department” had been downloaded); and that defendant pay monetary sanctions equal to plaintiff’s reasonable costs, including attorney’s fees, associated with bringing the present motion.  Defendant was further ordered to provide a detailed affidavit outlining its preservation and collection efforts and certification that automatic delete functions had been suspended and that backup tapes containing unique evidence were also preserved.

The court concluded:

Lilly failed to take reasonable steps to preserve, search for, and collect potentially relevant information, particularly electronic data, after its duty to preserve evidence was triggered by being served with the complaint.  Lilly’s failure to take steps to preserve evidence may have resulted in the destruction of relevant evidence.  In addition, Lilly failed to present an adequately prepared and knowledgeable 30(b)(6) deponent. Therefore, the sanctions set forth in this order are appropriate.